Gold price eases from all-time peak; bullish potential seems intact
- Gold price retreats from a record high as traders opt to take some profits off the table.
- Worries over Trump’s tariff plans should limit losses for the safe-haven precious metal.
- Bets that the Fed would cut rates further could also act as a tailwind for the XAU/USD.
Gold price (XAU/USD) ticks lower during the Asian session on Tuesday and erodes a part of the previous day's gains to a fresh all-time peak. The US Dollar (USD) builds on the overnight bounce from its lowest level since December 10 and turns out to be a key factor undermining demand for the commodity. Apart from this, slightly overbought conditions on the daily chart further prompt traders to lighten their bullish bets around the precious metal, though the fundamental backdrop warrants some caution before placing aggressive bearish bets.
Meanwhile, investors remain worried about the potential economic fallout from US President Donald Trump's tariff plans, which might continue to support the safe-haven Gold price. Apart from this, bets that the Federal Reserve (Fed) would cut interest rates further this year should contribute to limiting the downside for the non-yielding yellow metal. Hence, it will be prudent to wait for strong follow-through selling before confirming that the XAU/USD pair has topped out in the near-term and positioning for any meaningful corrective decline.
Gold price drifts lower amid some profit-taking; downside seems limited amid rising trade tensions
- The US Dollar moves away from over a two-month low touched on Monday and prompts some profit-taking around the Gold price on Tuesday amid slightly overbought conditions on the daily chart.
- US President Donald Trump said on Monday that tariffs on Canadian and Mexican imports are "on time and on schedule" and that reciprocal tariffs on other countries will also go ahead as planned.
- This raises the risk of a further escalation of trade tensions and fuels concerns about their impact on the global economy, which might continue to act as a tailwind for the safe-haven precious metal.
- The recent weaker US macro data reaffirmed bets for two quarter-percentage-points rate reduction by the Federal Reserve this year and might contribute to limiting losses for the non-yielding bullion.
- Meanwhile, Chicago Fed President Austan Goolsbee said late Monday that the US central bank has to take a wait-and-see stance, and needs more clarity before going back to cutting interest rates.
- According to the latest data released by the World Gold Council (WGC), physically backed gold exchange-traded funds (ETFs) registered the largest weekly inflow since March 2022 last week.
- Traders now look to the US economic docket – featuring the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. This, along with Fedspeaks, might influence the USD.
- The focus, however, will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which could provide cues about the Fed's rate-cut path.
Gold price technical setup backs prospects for dip-buying at lower levels
The range-bound price action witnessed over the past week or so might still be categorized as a bullish consolidation phase on the back of the recent strong move up to the record high. That said, the daily Relative Strength Index (RSI) remains close to the 70 mark and makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains. Nevertheless, the bias seems tilted firmly in favor of bulls and suggests that the path of least resistance for the Gold price remains to the upside.
Meanwhile, any corrective slide might continue to attract some dip-buyers around the $2,920-2,915 region, or the lower end of a multi-day-old trading range. This is followed by the $2,900 mark and support near the $2,880 region, which if broken decisively could drag the Gold price to the $2,860-2,855 area en route to the $2,834 zone. The XAU/USD could extend the downfall and eventually drop to the $2,800 round-figure mark.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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